Although estate planning isn’t necessarily a fun task, it’s something that needs to be done to ensure you protect your assets and prepare your families. Whether you’re drafting your estate plan for the first time or making changes to an existing estate plan, you’re probably questioning whether an inheritance tax will impact your heirs.
Utah does not have an inheritance tax. However, Utah does require heirs to pay a federal estate tax for larger estates.
To ensure Utah residents feel confident about the estate planning process, AA Tax & Accounting Services’ team of tax consultants has put together a quick guide on inheritance tax. Keep reading to learn everything you need to know to protect your assets and prep your estate for your heirs.
What is inheritance tax?
When a person passes away, their possessions are given to the established heirs in their estate planning documents. An inheritance is anything that a person receives as a result of someone passing away. This can include anything ranging from money and stocks to real estate and jewelry.
When the property is transferred to the new owner after a loved one’s death, the heirs of the estate pay an inheritance tax on the property. Inheritance taxes are determined on a state-by-state basis, and not all states require heirs to pay an inheritance tax.
How does an inheritance tax work?
If a state requires the beneficiaries to pay an estate tax, the individual will be required to pay a tax on some or all of the inheritance. Each state can determine if they will charge an inheritance tax, and if so, what the level of taxation will be.
Instead of having a singular tax rate, some states will specify different levels of taxation depending on the individual’s relationship to the deceased. While spouses may be exempt from inheritance tax, other family members such as siblings may be required to pay it.
Typically, the closer the beneficiary is to the deceased, the less likely they will pay an inheritance tax on the inherited property.
Are inheritance tax and estate tax the same?
A common misconception is that inheritance tax and estate tax are the same — but they’re not!
The estate tax is a federal tax held against the estate itself, not the beneficiary of the estate. This means that the inheritance will be distributed once the estate tax has been paid.
Not all estates are subject to estate tax, only large estates that have reached a specific threshold.
Does Utah have an inheritance tax?
Until you inherit property from a deceased loved one, you may not think twice about inheritance taxes, which is why it can cause many Utah residents stress. When named the beneficiary, they often turn to the experts to ask if they must pay taxes on inheritances in Utah. Have peace of mind knowing that Utah does not require its residents to pay inheritance tax. This means that after you pay any other necessary taxes, the inherited asset is all yours.
There are currently only a few states that require an inheritance tax. These states include Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.
Tax consulting services in Cedar City, Utah
Whether you’re getting your estate squared away or you’ve inherited property from a deceased loved one, you may have questions about tax inheritance laws in Utah. If you still have questions after reading through our quick guide, AA Tax & Accounting Services can help you navigate the estate planning process and walk you through everything you need to know.
The AA Tax & Accounting Services team is committed to helping you feel confident with inheritance tax laws. Contact us to schedule an appointment.